Preface
1. The buying, holding, and selling of securities, currency, or commodities in different markets or, in derivative forms in order to take advantage of differing prices and values for the same asset.
Chapter One
1. Jason Zweig, Your Money & Your Brain (New York: Simon & Schuster, 2007), 132.
2. Investors hate experiencing losses. Consequently, most investors do whatever they can to avert loss, against all odds or logic. Through their research, Kahneman and Tversky found evidence that the pain an investor feels with a modest loss is about twice the satisfaction he or she experiences with a modest gain. From my observations of clients over the years, I think that the 2:1 ratio of pain felt versus satisfaction experienced persists, even in the realm of large losses and gains. The hero-typology discussed in this book provides a more nuanced and accurate description of loss-aversion dynamics as experienced by each hero type. More about this in Chapter Five.
3. Jason Zweig, Your Money & Your Brain (New York: Simon & Schuster, 2007), 14.
4. Ibid., 15.
5. Ibid., 17.
6. Jason Zweig, “Your Money and Your Brain,” Money, September 2007, 104.
7. Ibid., 106.
8. Ibid., 107.
9. Ibid.
10. Ibid.
11. Ibid.
12. Ibid., 108.
13. Ibid.
14. Richard Davidson (with Sharon Begley), The Emotional Life of Your Brain (New York: Hudson Street Press, 2012), 4–6.
15. Ibid., 6.
16. David Kantor, Reading the Room (San Francisco: John Wiley & Sons, 2012), 11.
17. Ibid., 11–12.
18. Ibid., 56. Kantor notes that when people speak in the meaning domain, “it is to test and cement [their] understanding of [their] identity, try out new theories, gather more information, and learn from those around [them.]”
19. Ibid., 49.
20. Kantor refers to these engagement styles as “operating systems.”
21. David Kantor, Reading the Room (San Francisco: John Wiley & Sons, 2012), 206–221.
22. Ibid., 213.
Chapter Two
1. Jason Zweig, Your Money & Your Brain (New York: Simon & Schuster, 2007), 66.
2. Ibid., 6.
3. Ibid., 7.
4. Here I would recommend high-quality stocks with good management and sound financials.
5. State Street Center for Applied Research, “The Folklore of Finance: How Beliefs and Behaviors Sabotage Success in the Investment Management Industry” (Boston, 2015), 14.
6. Ibid., 14–15.
7. Ibid.
8. Ibid., 15.
9. Ironically, State Street itself is a purveyor of exchange-traded funds (ETSs) that mimic these indices.
10. State Street Center for Applied Research, “The Folklore of Finance: How Beliefs and Behaviors Sabotage Success in the Investment Management Industry” (Boston, 2015), 15.
11. Ibid.
12. Ibid.
13. For further reading on this controversy, I suggest you read Reckless Endangerment by Gretchen Morgenson and Joshua Rosner; Hidden in Plain Sight by Peter Wallison; and Free Our Markets by Howard Baetjer, Jr. (see this book’s Bibliography for these publication details).
14. State Street Center for Applied Research, “The Folklore of Finance: How Beliefs and Behaviors Sabotage Success in the Investment Management Industry” (Boston, 2015), 16.
15. Ibid., 17.
16. Ibid., 31.
17. The State Street report contains good brief descriptions of these biases on page 31. You can also access these definitions at the following URL: http://www.statestreet.com/content/dam/statestreet/documents/Articles/CAR/FolkloreofFinance_report.pdf
18. “The tendency to imbue people or objects with certain qualities based on perceived value rather than objective data.” (Source: mattyford.com/blog/2014/4/4sway-value-attribution-and-diagnosis-bias)
19. The psychology of money is also a factor, of course, when the leaders of companies speak at industry conferences, at shareholder meetings, or to Wall Street analysts. In such moments, it’s important to assess the tone and body language of the individuals or “experts” speaking, just as it is when listening to outside mutual fund managers or to “for hire” business consultants who may be advising you and/or others with whom you work.
Chapter Three
1. You may use other terms to describe what you do, such as investment manager, trustee, or portfolio manager.
2. David Kantor, Reading the Room (San Francisco: John Wiley & Sons, 2012), 23–26.
3. Ibid., 49–59.
4. An important clarification here. The designations of Mover, Follower, Opposer, and Bystander are not absolute categories of people. Nobody plays any of these roles to the exclusion of others. These descriptions refer instead to the kinds of “action stances” people are most likely to use in conversation in low-risk situations. Think of it as being a person’s behavioral default setting. With training and conscious effort, anyone can learn to employ any of these stances at different times, often benefiting the quality of conversation and decision-making.
5. David Kantor, Reading the Room (San Francisco: John Wiley & Sons, 2012), 11.
6. David Kantor, interview by Rick Koonce, Cambridge, MA, September 24, 2015.
7. David Kantor, Reading the Room (San Francisco: John Wiley & Sons, 2012), 130.
8. Each of us carries elements of all three types in us, according to Kantor, but we “tend to express ourselves predominantly through one or maybe two of these heroic modes” (Ibid., 206).
9. David Kantor, interview by Rick Koonce, Cambridge, MA, September 24, 2015.
10. James Grubman, Strangers in Paradise: How Families Adapt to Wealth Across Generations (Lexington, KY: FamilyWealth Consulting, 2013), xi.
11. The Four-Player model is applicable in both low-stakes and high-stakes settings. In low-stakes situations, individuals are likely to be flexible in the roles they play in conversation. But, as stakes rise, roles potentially become more stilted. Stuck Movers and Opposers become more dominant. Disabled Bystanders become more common, made ineffective by Movers or Opposers. More players simply choose to become Followers in order to survive.
Chapter Four
1. Kantor refers to engagement styles as operating systems. I use the term “engagement style” because it is more relevant to understanding the nature of client-advisor interactions. That said, the descriptions of Open, Closed, and Random systems are drawn from Kantor’s work on group dynamics.
2. David Kantor, Reading the Room (San Francisco: John Wiley & Sons, 2012), 82–95.
3. Each style provides a unique window into how a client conducts themselves in conversation with others.
4. The experience of loss is perhaps the most central event in defining how a person responds, as an adult, to financial losses, threats of such losses, or anticipation of financial gains.
5. Bruce W. Tuckman, “Developmental Sequence in Small Groups,” Psychological Bulletin, Volume 63, Number 6, 384–99
6. Augustus Napier, PhD with Carl Whitaker, MD, The Family Crucible: The Intense Experience of Family Therapy (New York: HarperCollins, 1978).
7. Eventually, however, the Schibasky children came to believe their parents’ finances were being well managed and conserved through the active support provided by my firm.
8. The Social Styles Matrix, developed by Wilson Learning of Eden Prairie, MN, identifies four basic interpersonal styles that people display in one-on-one, social, or group settings: Drivers, Expressives, Amiables, and Analyticals. For more information on this social styles model, I suggest you read The Social Styles Handbook: Adapt Your Style to Win Trust (Nova Vista Publishing, 2011).
Chapter Five
1. According to Kantor, all human beings develop a predominant hero type based on early life experiences of love and loss. This hero type emerges in early adulthood, taking shape as the result of a person’s life experiences and their interpretations of those experiences. A person’s hero type seeks to answer key existential questions: How do I see myself in the world? How do I want to be known? To what will I commit my life’s work? Will my work, and those in control, reward or reject my way of being? Will I be loved for my heroic self? And, who is the best person I can be in the world? While Kantor says these hero types become most evident in situations of high-stakes, they are actually nascent in us even in low-stakes situations. No one is a pure hero type. In situations of low stakes we can exhibit behavior of more than one hero type, but in situations of high stakes, one hero type tends to be dominant. David Kantor, Reading the Room (San Francisco: John Wiley & Sons, 2012), 207.
2. Ibid., 174.
3. The Protector’s experience with loss and gain is in line with Kahneman and Tversky’s observations that for most people, losses are twice as painful as financial gains are pleasurable.
4. Richard J. Davidson (with Sharon Begley), The Emotional Life of Your Brain (New York: Hudson Street Press, 2012), 2.
5. Ibid.
6. Ibid.
7. I have found that childhood stories are sometimes volunteered in response to these questions and can be of great value in learning more about the meaning that a person ascribes to experiences of love and loss.
8. If you feel uncertain what your own hero type is, or what your client might be, give yourself some time, and refer to sidebar, Understanding the Hero Type That You Bring to Client Discussions. Applying and leveraging the tools in this book will take time to use with insight and skill.
9. Remember, no individual is a pure hero type. There is no absolute relationship between a person’s hero type, language of communication and engagement style. Variations always exist in a person’s emotional template. What is presented in this chapter is a generalized hero typology.
10. David Kantor, Reading the Room (San Francisco: John Wiley & Sons, 2012), 222–223.
11. For example, you may advise the client to buy stocks and increase the weight of equities in the portfolio just when the market has been selling off in a prolonged downturn. You may say that you can never “bottom-tick” the market, but when stocks are relatively cheap, they may be attractive for purchase and should therefore be owned more broadly.
12. But also remember that, in high-stakes situations, the Protector may want to sell everything after the market has already corrected. In such cases, you, as the advisor, may not understand this sentiment of wanting to give up and will need to work with the Protector to avoid this mistake. After all, the only investors who lose in a bear market are those who sell everything and never recover the value of the stocks they sold.
13. Be careful, however, not to be so conservative that you significantly underperform in an up market! One client I had told me repeatedly that he didn’t want to lose money. So, we invested very conservatively. At the end of one particular year we were up 5% while the S&P 500 was up 10%. He was not satisfied because we, in fact, had underperformed. The amount of underperformance was likely an opportunity cost that he found painful to bear.
14. As a Protector counseling a Protector, be careful not be to be overly influenced emotionally by working with such a client. As a Protector myself, I recognize that this can be difficult, and that my own tendency to be a steward and protect my clients needs to be weighed against the potential upsides of prudently chosen stocks and investments that may be new or appear initially risky to the client.
Chapter Seven
1. Lee Hausner and Douglas K. Freeman, The Legacy Family (New York: Palgrave MacMillan, 2009), 6–7.
2. Ibid.
Chapter Eight
1. For the uninitiated, Monte Carlo simulations are a projective modeling technique that can be used to forecast a portfolio’s growth potential by manipulating various inputs (e.g., cash flows, tax obligations, likely inflation rates, and anticipated client lifespans) to project a portfolio’s likely performance over a specified time period.
Chapter Nine
1. Incentive stock options or nonqualifying stock options.
2. Geoffrey Bellman, The Consultant’s Calling: Bringing Who You Are to What You Do (San Francisco: Jossey-Bass Publishers, 1990), 123.
3. Steve Yearout, Gerry Miles, and Richard Koonce, Growing Leaders (Alexandria, VA: ATD Press, 2001), 219.
4. Charles Collier, Wealth in Families (Boston: President and Fellows of Harvard College, 2006), 8.
5. Bryan Olson and Mark Riepe, “Using Behavioral Finance to Improve the Advisor-Client Relationship,” in Behavioral Finance and Investment Management, ed. Arnold S. Wood (New York: CFA Institute, 2010), 125–154.
6. Ibid., 137.
7. Ibid., 125–154.
8. Charles Grace, III, “The Power of the Client Service Experience,” Family Office Exchange website. https://www.familyoffice.com/insights/power-client-service-experience.
9. Charles Collier, Wealth in Families (Boston: President and Fellows of Harvard College, 2006), 13.
10. I have seen other advisors who are Fixers act as if they can take care of their clients simply by telling them what to do. Survivors generally are more restrained in offering directive counsel, but sometimes the Survivor’s sense of stability proves to be very attractive to the client who sees “broad shoulders” to lean on.
1. Richard Strozzi-Heckler, In Search of the Warrior Spirit (Berkeley: Blue Snake Books, 2007), x.
2. Robert Greenleaf, The Power of Servant Leadership (San Francisco: Berrett-Koehler, 1998), 63.
3. Ibid., 5.
4. Ibid., 7.
5. James Grubman, Strangers in Paradise: How Families Adapt to Wealth Across Generations (Turners Falls, MA: FamilyWealth Consulting, 2013), 3.
6. Lee Hausner, Children of Paradise: Successful Parenting for Prosperous Families (Los Angeles: Jeremy Archer, 1990), 21.
7. Shawn Achor, The Happiness Advantage (New York: Crown Business, 2010), 40.
8. Ibid., 40.
9. Ibid., 63.